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2011 DIGILAW 422 (JHR)

Sree Balaji Construction v. Union of India

2011-05-06

PRAKASH TATIA

body2011
JUDGMENT 1. Heard learned counsel for the parties. 2. The short question involved in this appeal is as to whether the Civil Court was justified in disallowing the interest for the earnest money and security deposit of the appellant-contractor because of the Clause 16(3) of the contract. 3. Clause 16.3 of the contract is as follows; No interest will be payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract, but Govt. securities deposited in terms of sub-clause (1) of this clause will be repayable with interest accrued thereon. 4. In the arbitration proceeding, the learned Arbitrator found that the claim of the appellant-contractor was, in fact, the admitted claim and therefore, passed the award in favor of the appellant. The claim of the appellant-contractor was with respect to certain dues as well as with respect to the earnest money and the security deposit. The learned Arbitrator observed that the reason for withholding the amount given by the respondent cannot be justified in view of the fact that respondent tried to justify their retention of money on the ground that the contractor was liable to submit the royalty clearance whereas the Hon'ble Supreme Court has vacated the slay in April. 1995 and therefore, there was no justification for withholding the money by the respondent. However, in civil Court a plea was raised that in view of Clause 16(3) no interest was payable by the respondent on earnest money or security deposit as well as on other amounts. The learned Sub Judge, I, Ranchi relied upon Clause 16(3) and after considering the judgment of the Supreme Court delivered in the case of M. B. Patel & Company v. Oil & Natural Gas Commission (2008) 8 SCC 251 : 2008 AIR SCW 4094 held that the Arbitrator had no jurisdiction to grant interest which runs contrary to the restriction as per Clause 16(3) of the contract. 5. The learned counsel appearing for the appellant relied upon a judgment of the Hon'ble Supreme Court delivered in the case of State of Uttar Pradesh v. Harish Chandra, reported in (1999) 1 SCC 63 , wherein issue has been discussed in detail after considering the clause against the award of interest. 5. The learned counsel appearing for the appellant relied upon a judgment of the Hon'ble Supreme Court delivered in the case of State of Uttar Pradesh v. Harish Chandra, reported in (1999) 1 SCC 63 , wherein issue has been discussed in detail after considering the clause against the award of interest. The learned counsel also relied upon yet another judgment of the Supreme Court delivered in the case of Sayeed Ahmed and Company v. State of Uttar Pradesh and others, reported in (2009) 12 SCC 26 ): AIR 2009 SC (Supp) 2032. 6. The case of State of U. P. v. Harish Chandra & Company (supra) was under the old Act i.e. Arbitration Act, 1940 wherein clause under consideration was Clause 1.9 which provided that no claim for interest will be entertained by the Government with respect to any moneys or balances which may be lying with the Government owning to any dispute, difference or misunderstanding between the Engineer-in-Charge in marking periodical or final payments or in any other respect what so-ever. The Hon'ble Supreme Court considered the said clause in detail. Interpreting the said clause, the Hon'ble Supreme Court observed that the claim for damages or claim for payment for the work done and which was not paid for would not obviously cover any money which may be said to be lying with the Government and, therefore, the Hon'ble Supreme Court held that there is no prohibition which could be culled out against the respondent-contractor that he could not raise the claim for interest by way of damages before the arbitrator on the relevant items placed for adjudication. The Hon'ble Supreme Court also observed that similar contention has already been repelled by the three Judge Bench judgment of the Supreme Court earlier. In the case of Sayeed Ahmed & Company (supra), the Hon'ble Supreme Court considered several earlier judgments wherein the contract under consideration had specific condition for non-payment of interest. One of the cases considered by the Hon'ble Supreme Court was the Constitution Bench decision of the Supreme Court, delivered in the case of Irrigation Department, Govt. of Orissa v. G. C. Roy, reported in (1992) 1 SCC 508 : AIR 1992 SC 732 . One of the cases considered by the Hon'ble Supreme Court was the Constitution Bench decision of the Supreme Court, delivered in the case of Irrigation Department, Govt. of Orissa v. G. C. Roy, reported in (1992) 1 SCC 508 : AIR 1992 SC 732 . The Hon'ble Supreme Court considered the facts of the case observed that sub-clause (g) of the said contract prohibits the Commissioner from entertaining any claim for interest and does not prohibit the arbitrator from awarding interest and opening words of the said clause was "no claim for interest will be entertained by the Commissioner", which, according to the Hon'ble Supreme Court, clearly establishes that the intention was to prohibit the Commissioner from granting interest on account of delayed payment to the contractor. After considering the Constitution Bench decision, it has been observed that person, who has a legitimate claim is entitled to payment within a reasonable time and if the payment has been delayed he can legitimately claim to be compensated for that delay whatever nomenclature one may give to his claim in that behalf. In the case of Sayeed Ahmed & Co. (supra), the Hon'ble Supreme Court observed that the view expressed in the case of Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age (1996) 1 SCC 516 : AIR 1996 SC 2853 , is doubtful and then it has been observed that now in the new Act i.e. Arbitration and Conciliation Act, 1996, there is a specific provision for awarding interest by the arbitrator. The Hon'ble Supreme Court rejected the contention that in view of the bar contained in the clause against the award of interest, arbitrator cannot award the interest and held that the arbitrator had the jurisdiction and authority to award interest only for the pre-reference period but also during pendent lite period and arbitrator could not have awarded interest upto the date of award. However, any provision in the contract barring interest will, therefore, operate only till the date of award and not thereafter. 7. In view of the subsequent judgment to the judgment delivered in the case of M. B. Patel & Company (supra), the order under challenge cannot sustain and deserves to be set aside. However, any provision in the contract barring interest will, therefore, operate only till the date of award and not thereafter. 7. In view of the subsequent judgment to the judgment delivered in the case of M. B. Patel & Company (supra), the order under challenge cannot sustain and deserves to be set aside. Therefore, the order passed by the Court below dated 20th June, 2009 is modified to the extent that the appellant-contractor shall be entitled to the interest @ 18% from the date of award as per sub-clause (b) of sub-section (7) of Section 31 of the Act till the payment of dues by the respondent. 8. The appeal is, accordingly, allowed.